Economic Logic, Too

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I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Thursday, January 30, 2014

Economics is based on a small set of very powerful axioms that a the foundation of utility theory, general equilibrium theory, and more. Experiments have contradicted every one of these axioms one way or the other. We still keep them because they seem to apply most of the time, and the occasional violation does not invalidate the general picture. But it is good to keep an eye on their validity and think about alternative scenarios, especially if they bring us better theories.

Egmont Kakarot-Handtke decides to start afresh with a completely new set of axioms. And instead of choosing some that have some subjectivity, he takes some that are as objective as any axiom could be: four accounting identities and definitions. Yes, you read that right. 1) definition of national product (income approach); 2) a linear production function in labor; 3) definition of nominal consumption as the product of real consumption times a price; and 4) the values of all economic variables this year are last year's variables times one plus their respective growth rate plus an independent and random component for each. Easy. From this Kakarot-Handtke builds an elaborate theory that demonstrates with a mathematical proof (it is in the title, so it must be true) that capitalism is on the verge of collapsing. To me it looks more like his readers could collapse from hyperventilating over this amazing pile of rubbish.

This bizarre scientist has trademarked his models. I am afraid I cannot go into more details about this work without violating some law (Trademark law? Law of sanity?). So I leave it at this.

9 comments:

you sent me an e-mail informing me that you have commented on my recent paper Mathematical Proof of the Breakdown of Capitalism. Thank you for drawing my attention to your contribution.

You write: “Economics is based on a small set of very powerful axioms that are the foundation of utility theory, general equilibrium theory, and more. Experiments have contradicted every one of these axioms one way or the other. We still keep them because they seem to apply most of the time, and the occasional violation does not invalidate the general picture.”

Logic should tell you that is against the very spirit of science to apply axioms that have been refuted. If you cannot do a little clear thinking by yourself you should at least read people who can:

“In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)

It seems that you have overlooked the key sentence of the introductory section of my paper:

“The consensus is that general equilibrium theory has failed on all counts. It has not failed because of axiomatization but because of choosing the wrong axioms.”

So, who are the “we” who still keep those “very powerful axioms?”

“But just as in the past, the economists’ claim of ‘doing science’ hardly convinced their contemporaries outside of a very limited circle of followers.” (Benetti and Cartelier, 1997)

Intermediate result: you and the “we” of a limited intellectual rearguard are defending substandard scientific practices.

In your summary of the structural axiom set you write:

“Yes, you read that right. 1) ...; 2) a linear production function in labor; ...”

It is obvious that reading, too, is not one of your strengths. I explicitly wrote: “The 2nd axiom should therefore not be misinterpreted as a linear production function.” (p. 3)

After misrepresenting the (very powerful, indeed) structural axiom set you write:

“From this Kakarot-Handtke builds an elaborate theory that demonstrates with a mathematical proof (it is in the title, so it must be true) that capitalism is on the verge of collapsing.”

My demonstration is, as stated in the first sentence of the Abstract, an existence proof. As good logician you know quite well that the existence proof of general equilibrium does not prove that the economy is on the verge of equilibration.

I concluded the paper with: “Under the secular perspective, the monetary economy is heading towards the final turning point.” Secular, to wit, is not the same as on the verge.

It is quite clear that, as a matter of principle, a mathematical proof does not yield a day in the calendar. If you accept timeless general equilibrium this should be a straightforward logical conclusion.

If you think the structural axioms are wrong there is a simple way to settle the matter: disprove one (one suffices as you have probably heard from the methodologists) of their logical implications!

Thank you for warning your blog readers from looking into my paper. As long as they are busy doing reduced logic together with you, the rest of the world is safe.

Economists read this page. Economists who you can't trick by dressing up a pig (really crude reduced-form accounting identities) as a princess (some sort of theory you falsely believe proves anything).

You make all of these claims like your model is testable. Where is the data?

In short, you have given us a handful of reduced-form accounting identities, claim you have a nonlinear production function (your production function is OBVIOUSLY linear, as we can see by reading your paper), and told us these implications are testable. Yet you do not test them. You have not a single regression or data set in your entire 23-page opus.

And you call yourself a scientist, and come here to call names to a superior economist than yourself?

Go away, all you are doing is embarrassing yourself. You could not embarrass your school because your school is nothing and has zero prestige anyway.

it is nice to learn that you have a sidekick. Now you are two: Don Quixote and Sancho Panza. I am looking forward to what Rocinante will tell us next.

Dear anonymous,

let me put one important thing straight. Economic Logician sent me an e-mail, for whatever good or bad reason, informing me that he has commented on a paper of mine which I have deposited on SSRN and MPRA. So I took notice.

The key point of my reply should be clear. The comment is not only of low quality but positively misleading. Economic Logician is free to ignore my papers or to find them uninformative or whatever; all this does not include blatant misrepresentation. One example suffices: I wrote that the 2nd axiom must not be interpreted as a linear production function, he writes in his comment that the structural axiom set contains a linear production function.

You, like anybody else, can easily check this. Obviously, you did not, but you repeat the misrepresentation.

Before you read on, go to the website axec.org, Terms of Use, and download the paper Geometrical Exposition of Structural Axiomatic Economics. Then go to page 5 and try to decipher the caption of Figure 2. You then will agree with me that it reads: Tracking of an arbitrary production function with the 2nd axiom.

This graphic settles the matter.

The rest of your argument does not deserve a reply. The title of my paper is Mathematical Proof of the Breakdown of Capitalism. If you think you can disprove it, you are invited to try. The invitation does not include misrepresentations or silly comments.

In case you are intending a coming out, one thing, I suppose, would be of interest to the readers of this blog: do you belong to the LLL-school of economics (Low Level Logicians) or to the HHH-school (Heavy Hyperventilating Hobgoblins)?

Dear logician, dear anonymous,

if you feel the strange urge to comment on things you do not understand, at least keep to the facts.

You claim to be affiliated with the Institute of Economics and Law of the University of Stuttgart. Yet, there is no trace of you on the Institute's website, and the University's website either. How do you explain this?